Thousands of volunteering and self-organizing detectives have been meticulously laying a puzzle that reveals the Gox billion-dollar heist as an inside job. As smoke clears on the implosion of the Empty Gox bitcoin exchange, thousands of people in the community committed to revealing the truth behind the stonewalling exchange. What was claimed first to be a technical problem, then an outside theft, has been conclusively determined that the MtGox management knew too much, too long ago, to have this be an ordinary case of theft.

There are still many question marks remaining surrounding the missing 744,408 bitcoin at Empty Gox, valued at their peak to just under one billion US dollars, and which are well north of that in replacement value on the open market today. What’s becoming clear, though, is that this wasn’t a theft that properly shut down operations as soon as it was discovered. Instead, Empty Gox and its CEO Mark Karpeles appear to have attempted to benefit and profit from it. That would cross the line into criminal complicity, even if they were not part of the original loss – something that also remains an open question.

At this point, there are two outstanding principal questions:

Who took the money?

When was the money taken?

Let’s address the second question first and get the timeline in order, because it completes a lot of the puzzle. I have written before that it would be absolutely impossible to not notice the loss of one billion dollars from company assets, unless you were actively cooking the books to hide a gaping hole where a billion should have been. As it turns out, it seems such fraudulent cooking is exactly what has taken place.

An attempt at a timeline

Many different people have been working diligently to put together a timeline of events. Here’s an attempt to summarize the most important and credible ones.

June 2011 – the first possible time when the bitcoin in question might actually have disappeared (Jesse Powell). If true, Empty Gox has been operating with a lack of assets since, attempting to gradually cover the huge hole in its assets though operating profits. This would explain why there aren’t any books or balance sheets at all (Roger Ver), since making them would disclose the empty vault. Obviously, failing to disclose this would probably be at least criminal neglect toward shareholders, and quite possibly toward financial authorities as well.

June 23, 2011 – Under pressure to prove solvency, Karpeles moves a very specific huge amount of money (424,242 bitcoin) from one wallet to another. Thus, we know that he was in control of the target wallet of this transaction at this time, and can trace the funds forward from that point in time.

May 2, 2013 – Empty Gox was sued by CoinLab for 75 million USD for breach of contract. For unknown reasons, Gox failed to fulfill obligations to provide server access, resulting in a startup-crushing financial liability for failing to deliver. (Rob Banagale)

(Interestingly, there’s a massive selloff of 750,000 coins at an average price of about 100, totalling $75M, just following this event, suggesting customer coins were fraudulently sold to cover Gox liabilities. However, such a move wouldn’t make sense from a funding perspective, as it doesn’t change the amount customers have deposited in the exchange – if there was $75M deposited already, that could be used directly without a selloff; if there wasn’t, it would not magically appear because Gox sold customers’ coins on their own exchange.)

Summer 2013 – First Gox competitors get a significant foothold in the exchange market. Trading volume at Empty Gox, and therefore income from commissions, drops to one-third of pre-April levels.

August 2013 – First rumors that everything isn’t financially well with Empty Gox. Trouble with US Dollar withdrawals due to August 13 seizure of funds by US government. Nothing solid at this point, but in hindsight, this is when the game of musical chairs started (Weiner). The fractional reserve that was initiated some time 2011 has been holding up until this point.

September 10, 2013 – Empty Gox countersuesCoinLab for five million US dollars in cash, which appears to have been withheld by CoinLab for some reason in a way Gox didn’t agree with. That would indicate Gox is now very short on cash. (Banagale)

October 20, 2013 – First report of a withdrawal from Empty Gox that didn’t go through, like an ATM executing a withdrawal but not dispensing any money. The stuck withdrawals are technically diagnosed by the community to be caused by an attempt at Empty Gox of spending the same money twice, which suggests that the Gox software believes it has money that it actually doesn’t. This is the date when Empty Gox management, at the latest point possible, must have been acutely aware that it was unable to serve withdrawals due to lack of funds. (Bryce Weiner)

November 26, 2013 – Last known transaction of the chain directly descending from the proof-of-solvency in June 2011 (easily manually traceable). On this date, Gox was able to access the cold storage that was used earlier, at least partially negating a “lost keys” theory.

December 2013 – People’s Bank of China announces an end to Chinese bitcoin trading by February 1, 2014. This causes Chinese to withdraw from Empty Gox in large numbers, depleting the reserves.

January 2014 – I try to empty my account at Gox. Bitcoin withdrawals are not coming through. It’s like emptying your account at an ATM but only getting dispensed a fraction of the money out of what was listed as withdrawn. Still not a large issue in the forums; you have to dig deep to find some technical discussion threads analyzing the withdrawal problems. Complaints to Gox get answered well after a week, at which point the balance is restored, and new withdrawals fail the same way. Rinse and repeat.

February 1, 2014 – Following the People’s Bank of China edict that times out on February 1, the amount of stuck withdrawals at Gox goes stratospheric enough for independent people to start tracking them on charts for debugging purposes.

February 4, 2014 – I publish my “38 million dollars missing at Gox” article, which is the first article to convert the question from a technical to a financial one, as far as I know. Several people would contact me after that article and hint that the situation was much worse than I could imagine.

February 7, 2014 – Gox shuts down bitcoin withdrawals entirely, citing technical problems and promising more information on February 10, a Monday.

February 9, 2014 – First recorded event of a so-called “transaction malleability attack” against the bitcoin blockchain, which Gox will blame the following day for all its ongoing problems. This contrasts with the fact that failed withdrawals occurred as early as October 20, 2013. (Weiner)

February 10, 2014 – Gox issues a press release explaining their halted withdrawals blaming problems with the bitcoin protocol as such, due to so-called “transaction malleability attacks”, and that they are working to solve the problem. This is immediately identitied as technical bullshit by a number of heavynames, plus myself.

February 15-17, 2014 – Empty Gox issues various “we’re working on it” updates, and gradually shuts down the exchange further, halting trading for six hours on February 15 for alleged maintenance and debugging. Gox promises an update on February 20.

February 19, 2014 – Gox moves to new offices according to a press release. The new address is a small virtual office in a rent-a-room business building in Tokyo, Cerulean Towers. Many in the community question the timing – you don’t move offices in the middle of a company existential crisis.

February 20, 2014 – Empty Gox issues a non-update to the situation, blaming delays caused by the office move, not giving a date for when its next update will follow. A few hours prior, there had been a massive selloff of coins on Gox, sending the price from $300 to $150, strongly suggesting insider trade (read: obviously showing).

Through February – People observing Gox actions remain hopeful at the slightest activity that things will sort out well in the end; some technical developments do take place. Meanwhile, the exchange rate of bitcoin tanks, especially on Empty Gox which is now isolated from the rest of the bitcoin economy. The exchange rate plummets from $1,000 per coin to sub-$100 per coin on Gox, and to about $600 on other exchanges. Allegedly, Karpeles is acting to profit personally from this difference in price, which is directly caused by his own mismanagement and shareholder deception, through active arbitrage (Selkis).

…Karpeles knew about the pervasive damage of the transaction malleability attacks for several weeks and was engaging in an arbitrage scheme that leveraged the depressed Mt. Gox price to reap gains on other exchanges. This was allegedly happening well before [February 25].

February 24, 2014 – A crisis strategy draftleaks, courtesy of Ryan Selkis, that indicates there has been a leak from Gox’ cold storage, leaving a hole of 744,408 bitcoin. As Andreas Antonopoulos points out, a “leak” from “cold storage” is a contradiction in terms: that means it either wasn’t a leak or it wasn’t cold storage. This document makes it clear that Empty Gox management knew that the problem wasn’t technical, and that they knew well what was going on:

For several weeks, MtGox customers have been affected by bitcoin withdrawal issues that compounded on themselves. Publicly, MtGox declared […technical problems with the bitcoin protocol…]. […] The truth is that the damage had already been done. At this point 744,408 bitcoin are missing…

February 25, 2014 – Empty Gox website goes completely blank. The music stops. This is consistent with the timeline presented in the “Crisis Strategy Draft” leaked the day before. The bitcoin exchange rate plummets to $400 per coin.

February 26, 2014 – The exchange rate of bitcoin has recovered completely from the shock of Empty Gox closing, back up to $600 per coin. Erik Voorhees notes that the bitcoin price fell less after the Gox implosion than the US equities fell after the Lehman implosion, which puts things in perspective. (Voorhees)

February 26, 2014 – Mark Karpeles posts a statement on the Gox website stating he is still in Japan and working to resolve the “recent issues” (see screenshot).

February 27, 2014 – Mark Karpeles’ neighbors say he moved out of his apartment in Tokyo a month ago (Kolin Burges).

February 27, 2014 – The 2014-2017 business plan of Gox leaks, courtesy of Ryan Selkis. It confirms the leaked document from February 24, and notably lacks any balance sheet. It reads very much like a prospectus aimed at courting buyers.

February 28, 2014 – Empty Gox files for bankruptcy protection, according to the Wall Street Journal (breaking at the time of writing).

This timeline, when seen from a zoomed-out perspective like this, paints a clear picture of a company – or at least a management – that was well aware of an insolvency, trying to actively deceive the community and shareholders, and profit personally from doing so.

Who took the money?

So, the trillion-dollar question: who took the money? Strictly speaking, we don’t know that yet. We’re talking about a sum of money so large that “humongous” and “enormous” aren’t sufficient to describe it – it’s 6% of all bitcoin in existence, and assuming bitcoin keeps growing to its potential, that means one individual is sitting on 6% of the world’s future trade and retail currency supply. In today’s USD value, such an amount would be on the order of 20 trillion US dollars, or roughly 250 times the fortune of today’s richest billionaire. It’s not exactly hard to see a motive here.

If this happened in the 2011 hack, then frankly, we have no idea. There are rumors floating around that Karpeles just lost the keys to the vault, that Gox has money stashed away, that the billion dollars are “temporarily unavailable”, and while an admirable theory to get hopes up that those keys may be found again, the zoomed-out picture says very clearly no such thing has happened. Somebody managing a company like this and treating it like his personal toy would have a personality that could well hint at all the money being just around the corner if you would only make a few more trades, acting just like any Prince of Nigeria. There is also unconfirmed research suggesting that Karpeles is in personal control of a very large amount of bitcoin (about 90,000) once used in the operations of Empty Gox; this research can be expected to be peer reviewed over the coming days. But no matter whether Karpeles personally robbed Gox blind, or profited personally on continuous deception from somebody else doing so in 2011 while deceiving clients and shareholders, it is clearly over the line into criminal territory and definition of an inside job.

In order to further boost hope in returning the money, there have been rumors of a buyout, apparently planted by Karpeles himself. Such rumors, getting hopes up that the client funds would be restored, turned out to be nothing but delusional bailout dreams from CEO Karpeles, as I predicted in my last article – while I understand the hopes of a competent management buying Gox, as I wrote, that’s a contradiction in terms. No competent management is going to go anywhere near this toxic crater. Instead, as revealed by bitcoin entrepreneur Ryan “Two-Bit Idiot” Selkis, once the businesses thus approached understood the magnitude of fraudulent mismanagement, they immediately notified authorities.

The silence from MtGox in general and its CEO Mark Karpeles in particular is stunning – and concerning – in this situation. A billion US dollars of clients’ money is missing, and the only public statement amounts to “stop asking us questions”.

In what must surely rewrite the handbooks for the entire field of Public Relations, MtGox’ trailblazing handling of public concerns over the missing billion dollars at this point amounts to “stop asking us questions”.(Screenshot of mtgox.com, taken early morning on February 28, 2014.)

In the first and only interview so far after the still-officially-unexplained shutdown, which has already led to multiple tragicsuicides over the loss of fortunes, CEO Mark Karpeles responded to questions with a picture of his cat. This means that the communications skills from MtGox and Karpeles are either so carefully orchestrated here that only an experienced genius would understand them, or so incompetent that it falls below any description. Take a guess which is more probable.

According to research by Bryce Weiner, Karpeles himself is the person who took the funds, and this happened in 2011, which would be consistent with the observation by Jesse Powell (Weiner): “There’s nothing to indicate that Empty Gox was ever solvent.” While the timeline doesn’t conclusively show that Karpeles himself is behind the original disappearance of funds, it does show clear complicity in profiting from the heist.

As this article is almost finished, the Wall Street Journal reports that Empty Gox has just filed for bankruptcy.

Copycat Scam?

According to an anonymous high-profile source, the first and original bitcoin scam was the online coin wallet Mybitcoin.com. People would deposit hundreds of thousands of coins there, as the currency was new and hundreds of thousands of coins weren’t yet worth a lot.

Then, on July 29, 2011, the site went blank, just like the Gox website did. People panicked and gradually accepted a catastrophic loss of funds.

On August 11, 14 days later, the site came back online and declared – just like Gox – that they “had been hacked”, had filed for bankruptcy protection, just like Gox, but “had managed to recover” 49% of the funds. People could fill out claim forms to recover these funds – 49% of their original balance. As this was enough time for most people to internalize the loss, they were happy again at the sudden windfall; things suddenly weren’t as bad as they had seemed. In the meantime, the anonymous person who ran mybitcoin.com disappeared with a huge amount of money, according to the source.

In other words, the scam cynically exploited people’s loss and grief to actually make them happy when they got something back. Most “hacks” of bitcoin sites since then have actually been copycat scams of mybitcoin.com, again according to this source. If – repeat, if Empty Gox is executing a copycat scam, we should expect the site to offer their clients a portion of the holdings back, a portion probably lower than 50% (just to drive the point home), and that offer should appear on or about March 11, 2014. Time will tell.

The one key difference between mybitcoin.com and MtGox would be that Mark Karpeles is not anonymous, which would make for a very poor execution of a copycat scam.

Live Updates Below

[liveblog]

DISCLOSURE
As stated before, I lost 160 coins in this event, but I managed to get a majority of my holdings out in time. My heart and thoughts are with those in our community who lost everything, regardless of amount.

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About The Author: Rick Falkvinge

Rick is the founder of the first Pirate Party and is a political evangelist, traveling around Europe and the world to talk and write about ideas of a sensible information policy. He has a tech entrepreneur background and loves whisky.

Mark Karpeles, is a nerd with all the stupidity & gullibility it means. But it’s hard to believe that he is malicious at this point during all these years.

Maybe i don’t want to accept that I have lost money because of an unbelievable fraud. Maybe I’m still under the shock of this announcement. But still, there is some shadow points on this case :

– Does Mark K. acts under the constraint of the US government? Or is this just some conspiracy theories ?
– What about the wallets that seem to still belong to MtGox and are still plenty of bitcoins? Is it a fud ?

I don’t want to defend Mark Karpeles, but to help people understand this case, and let them think by themselves you should have included in the timeline the fact that Mark Karpeles has proven in 2011 that he has the people bitcoins by transferring it wallet to wallet. http://letstalkbitcoin.com/the-ghost-in-the-machine-at-mtgox/

Please, do not stamp out the facts that do not go in the direction of your version.

Karpeles is a self-though fluent Japanese speaker with a lifetime of core development experience. Mark is a probably a rare genius. His happy-smiley-dolphin-face makes us feel sorry for him. But I think no funds are stolen/lost. Since, according to the Mandala report, Karpeles was the only one with access to cold storage – he stole the wallets (so no coins were moved, just the wallets).

20 years from Karpeles will be sor rich he can buy a country like the USA or China and turn it into his personal “Magix The Gathering live cosplay themepark”.

The peak value would be 744,408 x $1240 = $923,065,920. This is the “just under one billion US dollars”. However, this is a false mirage. It was never possible to sell or buy 744,408 bitcoin at this price, or at any single price. It is much too large an amount.

To get an accurate market value, we’d need to look at the replacement value of those 744,408 bitcoin, if purchased on the open market today, would be well over one billion US dollars. The exchange rate listed isn’t a published exchange rate from some change office; it’s the rate of the latest transaction. Right now, on Bitstamp, you can buy as much as 131 coins for up to $570 per coin. If you want to buy more than that, you must pay more. If you want to buy 3,000 coins, you need to pay over $600 for the last ones. The cost to replace 744,408 coins would be well in excess of one billion on the open market.

Any current exchange price for BTC is not representative of Market Value, there is very limited liquidity in the market which is symptomatic of the hoarding. If anyone tried to realise their gains in significant numbers it would very quickly fall in value.

The only way Bitcoin survives is if it becomes an efficient method of exchange, it simply makes no sense as a store of value until it is widely accepted. Which means it needs to be able to inflate. (Fractional reserve banking or otherwise)

From a rational perspective it would only make sense to hold Bitcoin once it has real world purchasing power. Its current deflation is actually prohibiting it from becoming a widely adopted method of exchange.

In reality, the most people have lost is the aggregate amount of FIAT currency they put into MtGox in the first place. Not the unrealised gains as a result of trading BTC.

You’re saying that the estimates of the peak value are misleading because you could never sell that many bitcoins at that price in a short time, possibly even at all. This much is true and a basic fact of any free market. Then right after that you claim an even higher value on the assumption that someone wants to buy back 750k bitcoins in a day? You can’t have it both ways. People only lost what they put in, and it didn’t disappear completely – it went to someone else. The net value of all bitcoin trading is $0.

It might be possible to sue gox and get at least some of the real money out.
However no court will take bitcoin seriously as real money (and bitcoin theft as a real crime) – to them they are like video game money.
You don’t call real life cops when somebody steals your car @ GTA online.
So it’s very unlikely that you’ll get your bitcoins back.

Don’t want government regulation (and changes to the protocol to make it possible) – then you’re on your own when shit hits the fan – government will not help you.

Even if you consider bitcoins to be nothing more than a commodity, they are a commodity worth a considerable amount of money, and stealing half a billion dollars worth of anything is a crime. Yes, I agree that these exchanges should have much more government regulation, but what Gox did, even by there own version of events, is at minimum criminal negligence.

The entire situation around Mt Gox reeks of fraud. That being said… Crowd detectives? Really? That is a very dangerous thing: look what happened when reddit users tried to determine the identity of the Boston bombers. A tragic outcome. Investigation of this sort of fraud is best left to actual detectives not amateurs, no matter how well intentioned.

Sorry but imho this is pointless.
Every police investigation can be wrong, with innocents jail or guilty still in freedom. It happens regularly everywhere.
So, what does it mean? According to your point of view that we cannot fully trust police investigations as well as we cannot trust the crowd investigations.
Investigation IS dangerous on itself.

True, but at least the police have to adhere to a code of conduct and laws during their investigations. Sure some can be dirty cops and fabricate but in the majority of the time they act according to the laws they are bound by…. on the other hand anon, and “crowd detectives” only need to be guided by their conscience and their ego so as to be the first to name a suspect…. a very dangerous proposition.

Laws ensure (or at least intend to) that we are all treated equal, both during investigation and trial. Granting everyone those same rights (outright obvious criminals and those unknowingly and wrongly accused) allows the truth to be discovered and freedom or guilt to be determined.

[…] There are still many question marks remaining surrounding the missing 744,408 bitcoin at Empty Gox, valued at their peak to just under one billion US dollars, and which are well north of that in replacement value on the open market today. What’s becoming clear, though, is that this wasn’t a theft that properly shut down operations as soon as it was discovered. Instead, Empty Gox and its CEO Mark Karpeles appear to have attempted to benefit and profit from it. That would cross the line into criminal complicity, even if they were not part of the original loss – something that also remains an open question… CONTINUE […]

Admittedly I don’t understand any of the technical stuff, but from a philosophical point I gotta wonder if a currency not backed by a goverment can really be stolen? Seems to me more like if collective supplies in a autonomist survivalist bunker has been “relocated” by one of its founders…

Or a share of stock, for that matter. Or your shares at your credit union — which are only PEGGED to the dollar.

I don’t think there’s any question that a theft occurred. And likewise, if they can be kept ‘secreted away’ until the Statute of Limitations runs out, then Karpeles can spend them freely without any fear of legal repercussion.

before that The Domain was briefly owned by Booth.com ( a domain name reseller )

I’ve been doing a bit of research into the history of the Domain and it doesnt seem to have been anything to do with karpeles before that date.

I have screenshots from “wayback machine” website archive that shows it started around 1996 as a web marketing site, around 2010 it was briefly a photoshop tutorial site, then a photography site until late 2013 when booth.com domain sellers acquired it.

Imagine that an exchange operator X was contacted in private by some person B who wants to buy large lot of BTC from their corporate wallet at 15$/BTC, when the market price is 10$/BTC.

The buyer B could be a rich bitcoin believer, someone starting a bitcoin inevestment fund, or some criminal who needed a lot of BTC for some illegal activity. Such a private deal would make sense for B, since buying that many BTC would take time, may cost more than 15$ each, and coudl call unwanted attention on B.

X may see no ethical reason to reject the offer , since he would not be doing “fractional banking” but merely storing the clients’ assets in a different form — just as he could have stored their USD in treasury bonds instead of the corporate checking account. He could still honor all BTC widthrawals, by buying back those coins — while still making 5$ for himself on each of his client’s coins.

But now imagine that the BTC price shoots from 10$ to 100$, before X has time to buy back the coins. He would effectively have lost 90% of his clients’ coins.

When X’s insolvency becomes public, B will surely press hard on X to keep the deal secret; otherwise X’s clients might go to court against B, to have the deal voided and their coins back.

Perhaps B will even try to “help” the detective crowd by leaking documents and other evidence that points away from the deal.

Just a plot for a fiction tale, of course.

Seriously, one should not trust ANYONE from the “core bitcoin community”, nor any “evidence” that they may produce. A month ago they were all Mark’s friends, admirers, defenders… 8-(

“Seriously, one should not trust ANYONE from the “core bitcoin community”, nor any “evidence” that they may produce. A month ago they were all Mark’s friends, admirers, defenders… 8-(”

Absolutely! I would also include anyone who stands to gain from ‘bitcoin’ in one way or another, like one of twobitidiot’s inside informant is a precious metals dealer who most likely helped karpeles move his stolen btc to gold, palladium, etc. Everyone is happy.

There was a wallet that people are passing around as the wallet of the stolen coins. I followed the transactions for a bit, and it kept dividing into two roughly-half-sized wallets. And then those wallets broke into two, etc., etc., etc.

If that is the correct wallet, then that tells me that the culprit is most likely breaking the coins up into small relatively fixed-sized wallets for easy person-to-person sales. Probably on MicroSD or such. That way they can be sold without piecing them off the main wallet at each sale.

Yeah, cos if X is running the largest (and only) exchange he’s probably not smart enough to think about the massive exposure he’d be taking, or moreover that there’s no where else for him to buy that many bitcoins.

Like any banker, X would expect that his clients would never want to withdraw everything at once. In his mind, if perchance his coin reserve started to shrink , he would buy back just enough coins to replenish it. At worst, he could refund his clients in cash at the current market price, or even a small premium. Note that he did nor steal the coins with the sale, merely converted it to another form with the same value.

It would have worked, if the price hadn’t risen 10,000% in less than a month. Note that the price was ~14 USD in Ju/2011 and ˜14 in Jan/2013, for example: no change for 18 months: …

To hold any amount of cash against a large bitcoin liability, knowing how fast the price changes, would take a super-human amount of stupidity. That amounts to shorting bitcoin. Why would someone who believes and invests in its future make a large bet like that?

one individual is sitting on 6% of the world’s future trade and retail currency supply. In today’s USD value, such an amount would be on the order of 20 trillion US dollars

What would actually happen if that individual tried to use that money? That’s a wealth concentration we’ve never seen before in the entire world, and everyone would know about it. Bitcoin isn’t a useful commodity beyond its use as a currency, and that kind of a situation would probably shake people’s belief in the whole thing. It builds up over years and years to become the global trading currency, and then all of a sudden one guy comes out of the woodwork as a trillionaire? The global reaction would be, “Well, this is dumb.”

I think it is just as likely we are all dealing with the post apocalyptic nuclear fallout, scratching our rapidly balding heads, wondering where all the Bitcoin went…. possibly in a self reflective, introverted way, as the EMP destroyed the interweb as we know it.

It’s even possible the Secret Gazillionaire started the arms race in the first place as the rest of us cowered behind our ramshackle governments, singing “No Man is an Island” by Joan Baez to keep morale up.

If we take into account the multiplying factor used in fractional reserve used for US dollars (uased in the calculation), and apply that to Bitcoins, the amount of money could well be 4 to 8 times that mentioned here.

Except that fractional reserve banking is not (yet) common in Bitcoin, and will likely never become to such a degree as with classical currencies. Since the blockchain is public, any fractional reserve scam is bound to be quickly discovered. Even if people accept fractional reserve as normal, the safe percentage of real coin stock needed to avoid a bank run will likely be much larger than with other currencies or commodities.

Best-case scenario: some business the size of, say, Amazon decides that they’re not going to accept any of this guy’s coins. Everyone in the world who does business with Amazon panics and adopts the same policy in their bitcoin clients to make sure that they don’t get stuck with a bad coin. Then everyone else who’s afraid that they might have to do business with all of those people do the same thing. In the end, the coins are effectively destroyed, the bitcoin supply contracts, and who knows what the resulting deflation would do.

Worst-case scenario: Bitcoin is now subject to unpredictable inflation whenever this guy decides to start spending, because by making 700,000 bitcoin no longer dormant, it effectively increases the money supply. Our Mt. Gox thief now has the power to seriously screw with the global economy, nobody will know when, and the resulting uncertainty will cause a massive crisis.

Actually, the real worst-case scenario is that people develop such a religious devotion to bitcoin that everyone actually DOES decide that this jackass has 20 trillion dollars, but that’s not gonna happen.

Much like all of the rest of the bitcoin thefts, we have no way to determine which coins were “this guy’s” and his coins that he stole from us will go back into the pool. The advantages of bitcoin become severe negatives when trying to root out bad actors.

Even if Bitcoin became the only currency to be used in the world, which is highly unlikely for many reasons even if it is widely used, it’s ridiculous to directly relate that to the total amount of trade. All the world’s trade could be done with one penny if it moved fast enough (and Bitcoin is supposed to make transactions efficient). 6% of that penny would be approximately not very much. Thinking that this could be worth anywhere near $20T is 2 -3 (very large) steps removed from reality. You’re trying to say that the width of a river and the amount of water passing through it are the same thing. Taking a bucket of water out of the river doesn’t give you very much.

That might actually happen and the new exchange will probably attract the same kind of fools that put their money into Silk Road 2 or Project: Black Flag (That shit was hilarious as hell :D).
That just proves that bitcoiners have memory of a goldfish and that their enormous greed just turns off their brains.

Thanks for covering this again, Empty Gox is clearly not giving the whole story, and the damage has been done. I’m so uncertain on how the rebirthed “GOX” will use it’s massive user base to attract customers, but part of me is hoping they are finally dead forever – unless they “miraculously”…”recover” the 49% like mybitcoin did.

I watched the following transpire about a mile away from my home at a shopping center.

Hardware store went bankrupt. Held a fire-sale to liquidate. Left hand bought all the tools from the right hand at pennies on the dollar. And then opened up under a different name and tax ID number IN THE SAME MALL — right across from the husk they left behind.

well, i guess running around unbridled may get you lost….
but i wonder i someone might have cut the bridle…
HA, probably i’m too paranoid but wouldn’t it be perfect? according to zachary this is kind of a killer blow to bitcoin, either because it makes it undesirable or too vulnerablee. so the ones that are in might want to get out fast, and the ones out won’t get in after this. too much uncertainty and insecurity.
SOOO… back to credit cards and government endorsed/monitored currency, folks…
what government is gonna pursue the nice gentleman that herded all the strays back?
a just one, that is!
good luck finding it…

Karpèles is a Frenchman. There is no word for “contempt” in the English language that is sufficiently strong to convey the French emotions toward the US government; it can only be expressed in French accompanied by proper shouting and body language.

In other words, there is little reason to believe he would even consider such an order, not anymore than you or I would consider a gag order from, say, North Korea.

Not all Frenchmen are carbon copies of each other nor sporting the same hatred of America. This is trivially true of any sizable population with a modicum of variance, especially 65 million population. Their former president Sarkozy for one didn’t seem much repelled by USA. And Karpeles is anything but a typical Frenchman. – after all who ever heard of a Frenchman being fluent in any tongue other than French?

AFAIK Japan is a close ally of the US in criminal matters. A gag order from North Korea would have no teeth in Japan, but one from the US would. TheUS has already seized (temporarily?) 5 million US$ of MtGOX’s assets, for example. Moreover MtGOX has subsidiary in the US..

Why would it matter if he’s French and hates US Govt. when he is in Japan? Japan is essentially an extension of USA judicial territory, so if the USA says “shut the fuck up or you’re dead” in Japan, there’s not much else to do…

1) Of course the way to convert customer deposits into operating funds is to sell the deposited bitcoins in the MtGox market itself. The customers are supplying the USD.

2) Let’s say they were burning $2 million per year and average price of BTC over the past three years was $20. If they spent $5.7 million per year, they would burn right through it. $5.7 million per year is pretty easy to spend for a startup with a big office in Tokyo with 10-20 employees.

“Blockchain.info” has every transaction, all bitcoin are NOT EVER stored on you
Wallet but in the blockchain.
You can click away and find every coin ever made and the address it went to.

I found he is doing the safer thing storing 2,000 coins in each address.
At least >20 address’s in a few minutes of my time..
Why do that? With software the private key CAN be found just take’s Time.
He may lost a few address’s but not most that way. see Google.

BitCoin is going to replace the entire economy? What weed are you guys smoking, it must be really good. Why value the Bitcoin at the replacement value, why not the liquidation value. If the coin was sold for cash it is unlikely it could have fetched a few tens of million. Other than Andressen and the Winkelvoss twins, who is dumping $50 million into buying BitCoin?

To Gox is now a verb, as in ‘she Goxed over a million bucks in that get-rich-quick scheme before she was arrested’. The folk with missing money are now gox-suckers.

Focussing on the Coinlab incident you talk about. It is possible that Mark sold other people’s bitcoins for $75 million ($100 * 750,000 bitcoins)? Eureka, that’s the exact number of missing bitcoins!!!!

That massive selloff, of essentially all the real bitcoins, was him selling what he did not own, initially to cover the selloff, but also possibly, in hopes of an arbitrage opportunity to buy them back when the price fell back below $100. This never happened of course and as Bitcoins went up in value to $1000+, the money was not able to buy bad anything but 1/10th as many coins.

It is possible that this was a failed “inside job”. That Mark himself sold bitcoins which weren’t his, and lost his shirt in doing this, when he tried to buy them back to cover losses, or that he kept the $75 million hidden somewhere.

Irrespective of whether or not that speculation is correct, it seems impossible to put together a plausible story that the coins were hacked out or that private keys were lost, or that there is any kind of “gag” order, leaving theft by an insider as the only real probability. The likelihood however is that the insider theft took place not at $500+ per bitcoin, but at a significantly lower valuation.

I agree. This seems like the most likely answer by far. The numbers add up. I don’t understand the dismissal of the idea in the timeline. They sold customer Bitcoin in exchange for new customer’s fiat. They sent the fiat to coinlab. They figured they would do some reserve banking for a while till they could afford to buy everything back square. Then Bitcoin shoots up to 1200 and they are in a very ugly pickle.

The numbers do add up, that’s why I was so interested in that theory first. They even add up very well. But then I backed out a bit.

The thing that doesn’t make sense with this theory is, where did Gox sell the coins? There was no other exchange at this time that was remotely capable of handling such a volume, nor is there a corresponding volume on other exchanges.

Did they sell 750,000 newly conjured coins on their own exchange, creating the shortage of goxcoins vs. bitcoins? If so, why? That doesn’t give them any money to pay Coinlab – that just changes data in their own database.

If they had $75M in fiat deposits, they could use those directly. Selling goxcoins on their own exchange is not going to give them any more fiat deposits.

For starters, whenever your business holds real money belonging to other people (for the government’s definition of “real”), in nearly all jurisdictions you’re required to keep tight accounting of it compliant with regulatory rules. So if they defrauded their customers’ fiat deposits, it could be discovered even many years later, with the first audit of their accounting books. If, on the other hand, they defrauded their customers’ Bitcoins, there would be no paper trail left behind.

Assuming they intended just to “borrow” the Bitcoins to deal with their current (expected to be temporary) trouble – and then slowly replace the missing money with profits before anybody noticed – it might make sense to avoid leaving any paper trail.

Also, people who want to buy Bitcoins usually don’t just have some dollars lying on their exchange account. They transfer dollars to the exchange, then buy. Increased selloff volume would make more buyers send (fiat) money to the exchange to cover a matching volume of purchases.

Seems like every bitfloor exchange operator gets corrupted by the bitcoins they handle. Look at the parallel with the Bitfloor exchange. That was supposedly “hacked” for 24,000 coins. The operator, Roman Shtylman, made apologetic noises and the exchange came back up. Then Bitfloor had its US bank account closed down at which point it went offline and Shtylman walked away with all the bitcoins still held by the exchange, with no explanation or apology.

Don’t get fooled into thinking these are nice guys. They are just in it to scam you if they can.

Regarding:
——
If we follow the 500,000 Bitcoin wallet, we can see that they make a large transaction of nearly all of the coins are made and sent to a wallet publicly belonging to Gox on the Blockchain as seen below. This can only prove our theory that Gox had been in control of the coins the whole time.

As someone who believes (or maybe not only believed) in Bitcoin, this kind of thing is deeply troubling.

I predicted that Bitcoin would be *the* currency of future decades, restoring at least some amount of control to “the people”.

What I see instead is a handful of corrupt individuals/entities, like the admins of black markets, law enforcement agencies, and people like Karpeles, running off with an amount of Bitcoins which is worth thousands/millions today could end up being worth billions (or more) if the price of the currency continues to rise.

In a theoretical future where Bitcoin is the premiere currency of the world, some — if not most — of the richest entities on the planet would be the most crooked. In hindsight, I don’t know what I expected.

Now if you’ll excuse me, I’m going to go smoke some mail-order weed and probably wallow in existential despair.

Regarding:
——
If we follow the 500,000 Bitcoin wallet, we can see that they make a large transaction of nearly all of the coins are made and sent to a wallet publicly belonging to Gox on the Blockchain as seen below. This can only prove our theory that Gox had been in control of the coins the whole time.

Can you explain this paragraph in more detail. I don’t understand what you’re describing here.

(Interestingly, there’s a massive selloff of 750,000 coins at an average price of about 100, totalling $75M, just following this event, suggesting customer coins were fraudulently sold to cover Gox liabilities. However, such a move wouldn’t make sense from a funding perspective, as it doesn’t change the amount customers have deposited in the exchange – if there was $75M deposited already, that could be used directly without a selloff; if there wasn’t, it would not magically appear because Gox sold customers’ coins on their own exchange.)

Who was selling off the coins? Users on the exchange? Or Gox on another exchanges – there were no other exchanges. If it’s on the exchange then that could also be described as a buy up of BTC?

Is there a suggestion that Gox sold 750,000 btc to pay off the coinlab law suit and has been in the red ever since? If this is the point when the coins went missing wouldn’t it show in the subsequent company accounts.

I think you should contemplate in regards of if any government or judicial body anywhere has the slightest interest in upholding the value of rows of zeros and ones, when the zeros and ones only have a value based up on speculation and the zeros and ones aren’t backed up by any government or international body.

Thank you for exploring these ideas so thoroughly. It is my strong opinion that the events at Gox happened similar to the theories you put forward. It is refreshing to move beyond: cold storage loss leakage, mafia conspiracy theories and the US government has seized the coins.

-Is there any evidence that Karpeles has gambling tendencies? Perhaps he was losing a bunch of coins trading ala Nick Leeson.
-Who else was involved and profiting from manipulating BTC price? Is there evidence of a trading syndicate? Trading has been manipulated. That has to be obvious and accepted as a fact.
-Finally, if Karpeles is the sole thief and in possession of hundreds of thousands of ill-gotten bitcoins I don’t think he will derive much pleasure from them. A lot of tech savvy highly intelligent people will hound him for many years. Software could be altered to color his coins or other solutions. In short, I don’t see him buying out a country and becoming emperor.

Hi, thanks for all your research into this and I’m sorry for your loss. I had two questions:

You wrote: “which has already led to multiple tragic suicides over the loss of fortunes”
But the article you link to doesn’t state that the suicide discussed in it was related to Mt.Gox. Moreover, it only mentions one suicide, not multiple. Do you have other sources?

Your theory is interesting and I appreciate the thorough documentation. The main thing that I can’t seem to square with your theory is how he could possibly think he could get away with it? (a less persuasive point on my part is that he doesn’t strike me as intentionally malfeasant, though perhaps he became so after he had made some mistakes that he wanted to correct and then crossed the border into criminality.)
More likely imho is that he screwed up so incredibly badly and either got hacked and didn’t notice it in time, or that he lost access to the cold storage and only noticed this relatively recently. While all the events that you document don’t necessarily support these theories, they don’t directly contradict them either. They could simply be part of other kinds of problems Gox was blundering into and dealing with.

I’ve barely started digging into it, but I believe there could be important clues to his past and his personality traits in there. This can help shed light on what type of individual we’re dealing with here.

Keep in mind: He will probably delete that blog any minute now, so people should copy it before it’s too late. (It’s actually strange he didn’t delete it already.)

In the Netherlands the Supreme Court ruled that also stealing someones virtual goods is theft. This because also non physical goods might have value, as it involves time and effort to create them. Theft is indeed an infringement on someones property rights; not to be confused however with reproducing goods and intellectual property rights.
In regards to MtGox it’s a bit more complicated as users voluntarily deposited their bitcoins. Therefor it may also be a fraud or scam, some really serious mismanagement or even the whole lot including theft.

WhoIs info for Gox.com has been changed to private 14 hours ago. Mt. Gox loading page shows announcement of intent to re-brand. The plan is in full swing. Do not let this piece of shit get away with your coins!

[…] for this flaw to be exploited. So, curious me wonders whose idea that actually was, because as Falkvinge points out, this was almost certainly an inside job. You should go read that whole article, but here’s a […]

My theory has been that Gox had their assets in fiat while their liabilities where in BTC..

They sold off 750,000 BTC that belonged to their customers to settle Coinlab, figuring they would pay it back as demanded. Then the ratios between Fiat and Bitcoin went exponentially, and Mt Gox was exponentially 500- 1000% upside down.

Now customer withdrawals start to happen, and they have to Ponzi in order to maintain the facade.

How can the Bitcoin economy grow without trusted third parties? How can Bitcoin go mainstream without trusted third parties? Should every Bitcoin holder, for safety reasons, be required to permanently lock down all of their coins in supercold storage? How does that facilitate trade? How user friendly is that?

I thought Bitcoin was supposed to be “the money of the internet” — a quick, easy and safe way to move money across borders, making trade easier and cheaper. But with all the thefts happening, most hardcore bitcoiners say that absolutely no one can be trusted, and any significant amount of coins should “simply” be engraved (in the form of QR-codes) in metal bars locked away in fireproof safes inside Faraday cages in steel vaults, just waiting (for years) for their value to somehow magically increase.

But an increase in value won’t happen unless Bitcoin becomes user friendly enough to be used by the Average Joe for his regular purchases of goods and services. And for that to happen, we need safe, reliable exchanges and other service providers (trusted third parties). And, in turn, for THAT to become a reality, we absolutely need some international regulations and safety nets securing and insuring the crypto-wealth people, for convenience, store on exchanges and online wallets. To put it bluntly: We need secure, reliable Bitcoin banks and -insurance companies.

Bitcoin MUST become co-opted/”compromised” by the powers that be — if it’s ever going to reach the mainstream. It must be legitimized, legalised and regulated by the central banks and other authorities many of us dislike and wanted to destroy — and, paradoxically, that Bitcoin supposedly was meant to undermine. That’s the only way to achieve truly widespread adoption.

Make no mistake: Mark Karpeles won’t be the last exchange owner stealing people’s money. This whole Gox thing was only a minor blow to the BTC economy, but when the owners of BTC-e or Bitstamp or other large exchanges end up doing the same thing, the blow might just be a major one, hurting Bitcoin in the long-term.

Nobody wants to admit defeat, and for many Bitcoin developers and evangelists this would be a defeat, the ultimate defeat indeed. The very purpose of Bitcoin is to provide money which is independent of state authorities, safe from seizure or surveillance, yet accessible to everyone, everywhere, with the ultimate goal of replacing state-issued currencies. Once regulated and controlled by states and central banks, Bitcoin is just a fancy money transfer and notarization protocol, nothing more.

I don’t say it would be bad (or indeed good) for Bitcoin, coins would probably be still mined, bought and sold, but that this would completely defeat the original purpose of the currency.

I agree that regulated banks and authorities will emerge, but you will still have an option not to use them and take care of your coins’ security yourself. That’s unlike fiat cash, which in large amounts is unwieldy, can be transferred only face-to-face, and is problematic to move in and out of country. This is what bitcoin is about: options.

And the money supply is still out of control of any central authority. No government can inflate Bitcoin into the ground, as has been done oh-so-many-times with fiat currencies.

There already are regulated institutions, e.g. most exchanges are subject to all those AML laws. No big deal here. I was talking about the regulation of Bitcoin itself, which may, or may not include debasing or, if you will, inflating.

Before you say that it’s impossible, mind that Bitcoin is software. Very clever, but still software. And this 21 million limit is not set in stone, but in software. Thus, it can be altered. Of course, now such a change seems unthinkable, but will it be so in 10 years? Or in 20? Nobody knows that. And when states, or the IMF, or something like that steps into the picture, things may very different from what they are today.

Isn’t i ironic that Falkvinge and other pirates loves bitoins to bits despite its fabricated scarcity and inbuilt DRM? Even more ironic is the fact that they have lost virtual profits. In other words according to their previous thinking they have lost almost nothing at all.

And what about their claims that what one can copy can’t be stolen? Yet they scream loudly about them having been robbed and stolen from.

Unless you have a monetary stake in copyright and were willfully trolling, I suggest you pause and ponder your life. What you said makes no sense at all unless you understand next to nothing about the copyright debate, Falkvinge’s croonies’ opinions, bitcoin and money in general.

Shortly and not exhaustively, bitcoin is money, you can’t copy it by design (so if you take it from someone, they have less of it afterwards). Laughing about virtual profits makes no sense either when most monetary transactions around the world are virtual.

Rick once again you try to out someone who doesn’t think like you, which actually reflects really badly on yourself-
As for my english it’s not worse than your ameriswinglish or a lot of your mostly clueless supporters but they don’t get scorned by you. Wonder why?

As for doublespending bitcoins, well it has happened as you know and is one of the reasons that bitcoinexchanges are crumbling as we speak.

and is one of the reasons that bitcoinexchanges are crumbling as we speak.

Bullshit.

Stop asserting things out of thin air like this. Extraordinary claims require extraordinary evidence. You’ve been hanging around this blog for well over a year just throwing in “the sky is pink with green dots and everybody knows it”-type wrenches into every discussion. You may get a kick out of making others’ days sourer, but those others don’t. In plain language, shape the fuck up. If you’re going to make ridiculous claims, back them up.

OK Rick we understand really really really well that you only want this blog to be filled with comments from people who adore you and never raises anything critical against your often Donald Duckish plans and quarter baked schemes & conspiracy theories.

Fact is that you have been an insider promotor and lobbyist for the Bitcoinindustry which you as a miner/is has been part of. And instead of excusing yourself you blame those who you recently had up on a piedestal and you claimed where so smart and successful that nothing could go wrong. But yes accordingly the blue cupboard showed up again for you with a not so nice content.

I would never spend my money on bitcoins. In my opinion, the risk is way too high.

I already don’t want to use banks because you never what they might do with your money and governments can just decide they’ll take you money. Just see what happened in Cyprus with the EU.

Honestly, I think the whole bitcoin story is interested but I’m already sick of money and, all in all, I’m not enthusiast at all about a new monetary system on top of our already existing one. I think people are already obsessed enough about money as it is.

One of the big problems I see with Bitcoins is that is it seems like most or a big fraction of the people who are interested in it are brought in by greed or because of the illegal nature of their activities. So, I think it’s normal that the currency wouldn’t be going so well when the whole purpose of money (in an ideal world I guess) shouldn’t be to be hoarded more and more but simply be used as a means of trading goods/services and self-regulation of our world.

I think the lesson to learn from this is: you can never ever trust anyone else than yourself to keep your money. But you have to.

I can’t read Japanese, but the reddit discussion of the Japanese newspaper article seems to suggest that there is proof mtGox was moving around 530k of bitcoins between the 7th and 10th of march. Add that amount to the 200k and the numbers are starting to add up so to speak.

Gox should be able to find the transactions in the blockchain where the coins went lost. These TX went to Bitcoin addresses. So Gox knows the Bitcoin addresses of all of the scammers. Now, why did Gox send funds to these addresses? They sent the funds because some users told them to do withdrawal transactions. I’m pretty sure that Gox is still in posession of their database where any Bitcoin address that was ever used for withdrawal can be linked to a Gox account. So Gox knows which Gox accounts were used for this scam. Mt. Gox is in posession of identity information for most (albeit not all) Gox users. So Gox has the names, addresses, ID card copies, and proofs of residence of many of the scammers which were involved in this exchange robbery. They know who has stolen the money.

But why don’t they try to recover the money from the thieves? I mean, they could sue them / freeze their accounts / report them to the police / etc.

But they aren’t even trying to do it. They just sit there and accept the “reality” that the money is gone.

About The Author

Rick is the founder of the first Pirate Party and is a political evangelist, traveling around Europe and the world to talk and write about ideas of a sensible information policy. He has a tech entrepreneur background and loves whisky.